Restaurant service charge line: taxes, charges you pay on your food bills
Restaurant service charges have become a moot point, with the Center seeking to design a legal framework to abolish service charges altogether. According to the Union Consumer Department, restaurants charging for services is an “unfair trading practice” and therefore cannot be imposed on consumers.
Consumer Secretary Rohit Kumar Singh said consumers confuse service charge and service tax and end up paying extra money on their orders.
The Minister noted that the charging of service fees is patently arbitrary and constitutes an unfair and restrictive business practice under the Consumer Protection Act.
Here is a breakdown of the fees and taxes you pay on your restaurant bill:
A restaurant bill includes the cost of groceries (usually listed on the menu), service charges, and 5% GST on food service, including takeout. The GST is 18% if a restaurant is located inside a hotel where the room rate is higher than ₹7,500.
Although the Center has made the GST mandatory, it is the service charge that is optional.
However, there have been many cases where restaurants have forced customers to pay service charges despite customer disapproval.
What Restaurants Are Saying About Service Charges
The National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI) have said charging service charges is not illegal.
“The service charge is transparent, worker-friendly, and is also recognized by numerous court orders that have been shared with the department. In addition, the government also derives revenue from the service charge as the tax is paid by restaurants. on the same,” NRAI chairman Kabir Suri said.
The association explained that a service charge, like any other charge collected by an establishment, is part of the restaurant’s invitation to potential customers. It is up to customers to decide whether or not they wish to patronize the restaurant, FHRAI said in a separate statement.
Difference Between Service Charge and Service Tax
Service tax is a tax levied by the government. This is the tax levied on the service provider, but ultimately borne by the customers using that particular service.
While the service charge is a kind of “forced tip” that diners pay, sometimes without their consent.
What do restaurants do with the service charge?
A significant portion of the service charge goes to the staff. Restaurants pay salaries to staff, but the service charge is an incentive for them.
“…service charges are intended for the benefit of the staff and so some establishments make a conscious choice to adopt a policy beneficial to their staff members. The levying of service charges is a general practice adopted throughout the world It is neither illegal nor violates any law,” FHRAI Vice President Gurbaxish Singh Kohli said.